Comcast Corp (CMCSA)has won its bid for European entertainment giant Sky Plc (SKY, SKYAY). The approximately $38.8 billion all-cash price beat out a rival offer from 21st Century
Fox(FOX) and its new owner Walt Disney (DIS), in an auction conducted Saturday by British regulators.

Comcast’s victory follows a failed attempt to buy Fox earlier this year. Fox still owns 39.12 percent of Sky and auction results do not compel it to sell. Nonetheless, it seems likely that Fox and Disney will eventually cash out, possibly as part of a transaction that would include swapping ownership stakes in other assets.

As with any big deal, you don’t have to look far for punditry on winners and losers. There’s general agreement Fox’ principal owner Rupert Murdoch has come out very well from this deal, as well as from the earlier merger with Disney.

Consensus, however, breaks down for Comcast. The initial selloff following the winning bid shouldn’t surprise anyone who’s kept an eye on M&A activity this year. Mainly, acquirers who pay big numbers are punished initially, as investors take a wait and see approach on ultimate success.

AT&T Inc (T) shares, for example, have generally lagged since the company announced it would buy the former Time Warner Inc. To be fair, that deal still faces a court challenge from the U.S. Justice Department anti-trust division that stands a good chance of making it to the US Supreme Court. But its clear investors are waiting for AT&T to show signs of success before getting on board.

Considering what happened to some stocks this year following the announcement of acquisitions, the action in Comcast shares has been relatively benign. In fact, the stock has so far only briefly breached our recommend buy target of $35.

That may still happen over the next few days as more Wall Street firms weigh in on this deal. But the more important questions for us are:

Was Comcast forced by bidding competition from Disney to "grossly overpay" for Sky, as one analyst put it?

Can Comcast still deliver on post-merger synergies given that it is paying roughly 15 times trailing 12 months EBITDA for Sky?

I believe the answers are no to question one and yes to question two.

First, it’s reasonable to assume that Comcast felt additional pressure to win this deal after losing the earlier bidding war for 21st Century Fox itself to Disney. And the price it finally paid was 10 percent higher than Fox’ sealed bid, as well as 17 percent above its offer heading into the auction.

But losing the bid for Fox did theoretically free up cash and potential liquidity to do this purchase. Moreover, it seems likely Sky was the company’s true objective, rather than the rest of Fox.

On the face of it, $38.8 billion is a very big number. But it’s not quite as daunting when you consider Comcast generated $13.8 billion in free cash flow the last 12 months, after $9.4 billion in CAPEX. As for Sky, it generated roughly GBP1 billion in free cash flow over the same period, also after hefty CAPEX.

Comcast is expected to finance the transaction with debt. And it will add Sky’s GBP8.3 billion in bonds to the $65.8 billion already on its balance sheet. Nonetheless, it took credit rater Moody’s less than 48 hours after the auction to affirm the company’s A3 credit rating, removing the company from credit watch negative with a stable outlook. That was despite the rater’s conservative expectations of 100 percent debt financing including for Fox’ portion of Sky, and that debt/EBITDA will rise to 3.6 times before declining over the next two years.

Moody’s announcement is extraordinary because its constituency is bondholders, who always have the most to lose with aggressive M&A. That should give pause to anyone pushing the overpaying or the too much debt arguments too hard.

The more important issue for stockholders is what buying Sky does for Comcast’s future growth. It’s worth pointing out that CEO Brian Roberts faced much the same skepticism—much of it from the same skeptics—when his company purchased NBC Universal several years ago. But synergies from that deal combining network and content are broadly responsible for the robust earnings and cash flow growth the company has enjoyed since.

Could owning Sky provide the same lift? The franchise is already highly profitable. But getting more from it likely depends to a great extent on Comcast’s ability to adapt its quarry’s successful innovation in marketing and technology that have allowed it to go head-to-head with Netflix(NFLX) in Europe. Sky also faces a long-term challenge holding onto its large store of exclusive European rights to content, including 21st Century Fox. But it’s also made a large and hugely successful investment in original content that has considerable upside.

Comcast is expected to generate growth by expanding its successful US content and distribution model to Europe, particularly the UK, Italy and Germany where Sky now has its largest presence. It also expects $500 million in overall synergies, in large part from cross selling NBC and Sky content. And management is likely to apply aspects of Sky’s "Q Box" platform to upscale its data capabilities.

A lot of people lost money betting against Roberts’ acquisition of NBC Universal. I expect the skeptics of this deal to fare just as poorly. But the biggest selling point for Comcast now is how low the bar of expectations is with shares trading at an enterprise value of just 7.9 times EBITDA. That compares to 10.2 for the company’s closest match in communications, Charter Communications (CHTR), which as of now lacks meaningful content synergies.

Comcast also trades at just 13.6 times expected 12 months earnings, versus an expected 5-year growth rate of 14.9 percent. Low valuations equal reduced investor expectations that are relatively easy to beat. That’s the value proposition for this stock on any dip under our buy target of $35.

I founded and ran the Utility Forecaster and Canadian Edge newsletters before leaving to form my own publishing company, Capitalist Times. During my almost 30-year tenure, Hulbert Financial Digest routinely ranked Utility Forecaster as one of the best investment newsletters...